Absorption Rate

AAA

DEFINITION of 'Absorption Rate'

The rate at which available homes are sold in a specific real estate market during a given time period. It is calculated by dividing the total number of available homes by the average number of sales per month. The figure shows how many months it will take to exhaust the supply of homes on the market. A high absorption rate may indicate that the supply of available homes will shrink rapidly, increasing the odds that a homeowner will sell a piece of property in a shorter period of time.

INVESTOPEDIA EXPLAINS 'Absorption Rate'

For example, suppose that a city has 1,000 homes currently on the market to be sold. If buyers snap up 100 homes per month, the supply of homes will be exhausted in 10 months (1,000 homes divided by 100 homes sold per month). If a homeowner is looking to sell a piece of property, he knows that half of the market will be sold out in five months. This rate does not take in to account additional homes that enter the market. The absorption rate can also be a signal to developers to start building new homes.

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Curb Appeal

    The general attractiveness of a house or other piece of property ...
  3. House Poor

    A situation that describes a person who spends a large proportion ...
  4. Open Listing

    A property listing that uses multiple real estate agents in order ...
  5. Real Estate

    Land plus anything permanently fixed to it, including buildings, ...
  6. Real Estate Agent

    A person with a state/provincial license to represent a buyer ...
Related Articles
  1. Personal Finance

    To Rent Or Buy? There's More To It Than ...

  2. Home & Auto

    To Rent Or Buy? The Financial Issues

  3. What makes a rental property profitable?
    Entrepreneurship

    Top 10 Features Of A Profitable Rental ...

  4. Home & Auto

    Will Your Home Remodel Pay Off?

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center